AFCA can help resolve complaints about insurance premium increases in some circumstances. This page answers some of the most common questions about these complaints.
- Can trustees increase premiums?
- Impact of legislative changes on premiums
- How AFCA deals with complaints about insurance premium increases in superannuation
Can trustees increase premiums?
Most superannuation funds offer insurance for their members. This insurance is provided by an insurance company. The insurer will charge the trustee premiums for this insurance.
Most insurance policies allow the insurer to change premiums. If an insurer increases a trustee’s premiums, then the trustee can increase the insurance premiums of its members.
Insurers rely on enough premiums being paid to cover potential claims. If the number of claims for a fund increases, then the insurer may need to increase its premiums, so it can pay future claims.
Impact of legislative changes on premiums
The recent Protecting Your Super (PYS) and Putting Members’ Interests First (PMIF) changes have led to a decrease in the number of people who have insurance through their superannuation. This in turn has led to insurers reviewing their group insurance arrangements, including the premiums.
For example, PYS changes introduced the requirement for insurance to be ‘opt in’ for inactive superannuation members.
AFCA is receiving more complaints than usual about large insurance premium increases because of PYS changes, and PMIF changes might have the same impact. We think this increase in premiums is because the number of insured members is smaller (among whom risk can be spread) and not because of trustees failing to properly insure their members. This issue is affecting both industry and retail superannuation funds.
How AFCA deals with complaints about insurance premium increases in superannuation
AFCA has limited power under its Rules to consider complaints about premium increases. Broadly, we can only consider complaints about whether the premium increase was:
- Inadequately disclosed
- Incorrectly applied; or
- A breach of any legal obligation or duty of the trustee or the insurer.
AFCA will consider the trustee’s disclosure of the premium increase by looking at:
- How the increase was disclosed
- Whether the reasons for the increase were properly disclosed
- The timeliness of the disclosure.
AFCA will consider if the increase (and the reasons behind it) have been represented correctly. We will consider if a reasonable person could understand the trustee’s explanation and whether alternative options to the premium increase were represented correctly, such as a reduction in the level of cover.
AFCA may review the trustee’s calculations to make sure the premium increase was correctly applied.
Breach of any legal obligation or duty
AFCA considers a disproportionately large increase in premiums, without reasonable justification, can be a breach of a legal obligation or duty on behalf of a trustee. AFCA can review these complaints to determine whether there has been a breach of a legal obligation or duty.
We will also consider if the fee increase is permitted by the policy, the trust deed, and the legal obligations imposed on insurers and trustees. We may ask trustees to provide information to determine if these obligations have been met.
For more detail about our jurisdiction to consider complaints about large premium increases see page 150 of AFCA’s Operational Guidelines afca.org.au/about-afca/rules-and-guidelines.